1981 (9) TMI 53 - HC - Income Tax

Court Upholds Deduction Decision for Partner's Share Income Under Income-tax Act

The court upheld the Tribunal's decision to allow half of the claimed amount as a deduction from the assessee's share income under the Indian Income-tax ... Firm, Partners Issues:- Proper deduction from the assessee's share income under the Indian Income-tax Act, 1922.Analysis:The judgment dealt with the question of whether a specific sum could be considered as a proper deduction from the assessee's share income from a partnership business under the Indian Income-tax Act, 1922. The case involved an assessee who was a partner in a firm and had entered into an agreement with his son to receive a salary and other amounts for managing the interests of the assessee in the partnership. The deduction claimed was disallowed by the Income Tax Officer (ITO) initially but later allowed in full by the Appellate Assistant Commissioner (AAC). The matter was then taken to the Appellate Tribunal, which decided to allow half of the claimed amount as a deduction. The Tribunal considered two aspects of the payment: the son looking after the father's interests in the partnership and the son's activities on behalf of the assessee in the firm. The Tribunal relied on a judgment of the Madras High Court to make an estimate-based decision to allow half the claimed amount as a deduction.The Commissioner of Income-tax, Bombay City, challenged the Tribunal's decision, arguing that the entire amount paid to the son was for services rendered to the partnership business, making it not an allowable deduction for the assessee. The Commissioner relied on a Supreme Court judgment regarding services rendered to a partnership firm. However, the court distinguished the present case from the cited judgment, emphasizing that the assessee himself was physically incapable of rendering services and had to engage someone to represent him. The court referred to various precedents, including decisions by the High Court and the Supreme Court, where expenses incurred by a partner in earning income from a partnership business were considered allowable deductions.The court reviewed cases where similar deductions had been permitted for expenses incurred in managing a partner's interests in a firm. It highlighted that allowances typically allowed against business income could also be claimed against a partner's share from a partnership business. The court distinguished the present case from the Madras case cited by the Tribunal, where the person employed was found to be rendering services to the firm rather than to the individual partner. Ultimately, the court upheld the Tribunal's decision to allow half of the claimed amount as a deduction and ruled in favor of the assessee, stating that possibly the entire amount could have been allowed as a deduction. The question was answered in the affirmative in favor of the assessee, who was awarded costs.